Basic common sense: Why does the government with it's monopoly on violence has to enforce a minimum wage in the first place? Answer: Because the market price for certain kind of labor is lower than the minimum wage. Logical Conclusion: Raising the minimum wage will put more workers out of work. This is basic economics known since the middle ages.

"One of the most maddening things about political debate is that it's rhetorical suicide to accept tragic trade-offs. So one must deny that there are trade-offs. It's got to be all benefit, no cost."
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Truer words have never been written about American politics.

we appear to be having again, is a debate over the question of whether raising the price of something—low-skilled labour, in this case—will reduce demand for that thing. That is to say, it is a debate over the relevance of the law of demand

Interetsing article, but some things are missing here I feel and that makes it a little one-sided.

First of all, depending on the increase of the minimum wage in question, one might be better off talking about an indexation of a minimum that is actually decreasing over time. If the minimum was tied to inflation, this point would be moot, but since it isn't all businesses employing minimum-wage workers are actually getting a rebate over time, since they do rise their prices periodically to keep up with rising costs of other inputs. But theses workers do not see an increase in their wage (baring an increase in the minimum wage). The minimum wage raise addresses that, assuming we think have a minimum wage at all is a good thing.

Secondly, depending on the level of the increase and the different businesses, it might not be enough to have an effect on the level of employment. The fact is that while wages are (pretty much) a continuous variable (pennies are small enough so that the increase of wages of a penny is neglectible, therefore we can consider wages to be continuous), employment is not. If a business hires 10 persons, then it has the choice, after the increase, to lay-off one or not, but can't lay-off 1/100 of a person. Or it could hire (or put off the decision until later). So, depending on the level of the increase, it might not have the consequence to lower the employability of low-skill workers. Another factor of importance is that while wages are an important cost in most business, it is rarely the only one (especially in minimum-wages jobs, since these jobs tends to have lots of products like food or equipement as inputs), thus depending of the relative importance of wages compared to other cost, it is more or less relevent on the decision to hire more or lay off people. One could argue that reducing the number of hours worked is a way around the fact that employability is not very continuous, but it isn't always possible: if a restaurant is busy enough to warrant 3 employees at any time of the day, cutting a shift might not be an option (having worked in restaurant, there are just situation where you need workers to work in parallel, and are thus unable to cut a shift).

Yes. This is my thought exactly. I’d like to see an example of where an increase in minimum wage, for example, $1 per hour, has a practical effect on employment. To do so, the current value of the employee (production minus cost) must be less than the wage increase. So is it that some employees at Walmart or McDonalds or Bob’s Asparagus Farm, etc only produce a value of say, $0.90 per hour (ie: $7.20 per day)? It’s hard for me to imagine that many such employees already exist. Further up the scale will an employer who is getting $50 per day in value from a worker fire that worker when they only get $42.80 per day in value? The same would be applicable for new employees. Perhaps in the aggregate, but as you note this is not possible in many circumstances.

Thank you. Finally. It really is just basic micro. I really can't believe that this is a debate.
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There are still, of course, secondary considerations. But I can't see how that would be much more than noise. Personally, I'd think that it would be worse, as prices would increase due to the increasing cost of labor, but whatever.

Yes, which is why a VAT Tax with controls so it won't decimate the poor would be much more beneficial than the current tax system we have since the poor usually have to consume more of their income to live.

Little is said about the people who are to benefit from this action. Only about 3% of the work force is employed in a full time job at the minimum wage (not counting the unidentified workers who are employed illegally at below minimum wage and paid in cash). The largest fraction of this group fall in the 16-19 year old age category. What impact will this change have on them?

There is a case to be made for efficiency wages. There is not a case to be made for increasing wages in order to increase demand for a firm's own products. The employees would need to buy so many more of the firm's products with the increased income that the firm's profits from those sales would outweigh the costs of the wage increase in the first place.

It may be the case that some industries end up benefiting from the increased demand such that they end up receiving more in profits than they have to pay in wage increases, but there is no reason to think that this phenomenon would be anything but the exception to the rule.

When the minimum age is raised gradually nationally, we may lose some jobs, but overall we will raise the productivity across the industry, because Labour becomes more valuable.

I can't see why there is such a fight for keeping minimum wages low, except in industries that don't want to invest in their business to increase productivity and want to just look at brute force.

When in America you can not live on minimum wage, why not let it be raised. We are using food stamps and subsidized housing to justify having low minimum wages. If the people here are going to talk of free market forces, they have to acknowledge that the businesses that are employing people with very low wages, are essentially getting an indirect tax break from the government in the form of food bank, social housing, etc.

I say then force these businesses to burden more of the cost of the social impact of such low paying jobs.

The problem is, as the article points out, the result of 'forcing these businesses to burden more of the cost" is that the businesses, in many cases, will respond by laying off workers.

Profits are not guaranteed in business. Most businesses which thrive on low-wage, low-skilled workers have slim profit margins. It is naive to think they can all absorb higher labor costs, with no impact on labor levels.

The author is correct - to the extent the lowest skilled workers can not make ends meat, the solution is to provide subsidies, as a society - in the form of transfer payments.

I'm not for aboloshing the minimum wage altogether - but jacking it up too far too fast will likely do more harm than good.

For a while I've wondered if one answer to the problem of illegal immigration in the US would be a higher minimum wage. Structurally this should shift low wage work (e.g. meat packing) to low wage countries and make it unappealing to hire unskilled illegal immigrants. Of course workplace enforcement is needed to stop employers ignoring the minimum wage laws and going off the books.

This made a lot more sense before the crash when there were jobs a plenty and illegal immigrants streaming in. Now, not so much.

Most illegals are paid "on the books" using forged or stolen SS cards. A large fraction of them work in industries (i.e., construction trades) where wages are significantly above the minimum wage already. The change will only impact a small group of young workers (about 3% of the work force) with little or no skills.

First, why is immigration here a problem? If it's because you think that they take our jobs, then sending those jobs oversees by outsourcing is not really doing any good. Although, yes, the dynamic you are talking about is correct. It just seems like one bad policy being defended because it protects another bad policy.

Better to get rid of taxes that cause the cost of labour for employers to exceed the workers' take-home pay. Then let the market raise take-home pay where it will. To see how the tax changes could work in Australia, google "Draft Federal Budget Speech, 2013-14" (with quotation marks).

I wish that someone would say that it is an Entry Level wage.
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If someone can't make it past the minimum, something is wrong with the person, or something is wrong with the employer and you vote with your feet. After establishing the best work record you can, you move on to somewhere where you work ethic and skills will lead to more money.
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NPWFTL
Regards

Doesn't it depend on whether the current minimum wage represents the value of marginal product of the lowest-skill workers? If the old minimium wage undervalues the value of marginal product, then the correct strategy for firms is to keep on hiring until the minimum wage reaches the VMP (or hire lobbyists to make the government keep wages down, if we relax the game). I think that debate is much more fluid and, well, debatable, than an argument about the law of demand.

"My sense is that we'd do best with no minimum wage, wage subsidies, and transfers to low-income households that .." so, where do you stop before hitting slavery ? Or do you reccommend slavery as an economically sound practice ?

For minimum wage to cause unemployment, one reckons that marginal increases in wage will cause labour to be displaced elsewhere or substituted by other means of work. But if you do not put a minimum, you end up with slavery, hence no consumption possible by slaves, hence no production, hence no taxes...bummer ! we do need minimum wages :)

Ummm, no, the abolishment of slavery did not come about from the setting of a minimum wage.

On a much more sane level, what you are alluding to is what the author of the article mentioned - a situation where you have some form of employer monopoly, wherein employees have no ability to shop around for different jobs. In such an environment, there is risk of serious abuse - not quite slavery - but abuse.

Thankfully, as bad as the economy is, there's still more than just one employer in the U.S. job market.

Um, define "slavery". If you mean "people working for room and board", then that's a pretty stupid definition of slavery.

If you mean, "as system of labor that treats humans as chattel commodities with no control over their body", then why would no minimum wage possibly lead to this? Why, if McDonald's offered no wage at all, but asked me to sign a form by which they can sell my children at will, rape my wife, and beat me whenever they feel like it, why would I sign? There's a lot more to slavery than just "they're not paying you". (though again, if they're not paying you, why am I working there? Why would a restaurant or store want to get into the hassle of providing room and board when paying people money is vastly more convenient?)

You remind me of a congressional staffer I once met who claimed that agricultural subsidies and the Department of Agriculture were necessary because, without them, there would be no food and we would all starve (I guess no one ate food at all before FDR's administration... It must have been an exciting time for everyone.).

You assume that the minimum wage affects a significant fraction of the work force. The market forces for labor have pushed wages above the minimum wage for all but 3% of the work force. If the minimum wage were reduced, market forces would establish a new minimum wage, perhaps lower than $7.75. The possible decrease in buying power of this group would have a minuscule impact on the economy - as would an increased buying power due to an increased minimum wage. There may be reasons for raising minimum wages, but a rationale based on reduced or increased buying power is completely phony.

so, where do you stop before hitting slavery ? Or do you reccommend slavery as an economically sound practice ?

Slavery is a wage control. They are generally very bad. People should work at whatever the highest bidder for their labor is willing to pay for it. If it's lower that you want, you can fix that like education, just don't "fix" that like cards.

A higher minimum wage will put some people out of work? That argument has been advanced every time we've debated this issue over the past 60 years. Minimum wage increases go hand-in-hand with national inflation. We must demand an increase in the minimum wage for those at the bottom of society, or they simply won't get it. If those opposed to a minimum wage increase got their way many Americans would still be getting 50-cents an hour.

Its about supply and demand. The economy is weak right now, but not so weak that employees would accept 50 cents/hour.

As it is, most American adults earn more than the minimum wage - even low skilled, uneducated works. Why? Why don't all employers just pay the minimum wage? It can't possibly be that an employer would compete for employees, by offering them higher pay than is mandated....

You are right, this argument has typically been the response against raising the min wage.

However, I would counter that it is far more an accurate argument now than previously. Consider that most those employed on min wage are unskilled youth. Raising the min wage was meant to help the run of the mill worker. Now all it does is raise the price of unskilled youth labor, and add to inflation.

The reasons that organized labor is in such poor condition is that it no longer has a place in the workplace. If politicians continue to raise the min wage, and factory owners continue to pay their employees a few dollars above min wage than there is no incentive to getting organized. After all they are payed more than min wage.

Raising high school employees wage 50 cents will not have a positive effect on the economy. It will instead deflate the wage of the factory worker who is make 10-12 bucks an hour.

I am opposed to min wage. Not because I want my dad to make 50 cents an hour. But because I know that raising the wage for high schoolers working at Baskin Robins does not lower the price of milk.

Since you admit to committing a strict liability offence hand yourself over to the law-enforcement authorities so as not to waste further public fund by having them look for you, and then plead guilty for the crime/s you have committed once you have been charged to court, in order to make further savings on the exchequer. In the UK you would get fined ten thousand pounds for each illegal immigrant you employ. The onus is on you, the employer to make satisfactory checks of the immigration status of all those you employ. And while you are at it admit all the crimes you have committed - you might get a sympathetic judge who would decide to give you a more lenient sentence that he/she might otherwise have given for the full admission.
Am I justified in describing you as a criminal, no better than those you freely admit to employing ?

You are encouraging criminal behaviour, quite apart from the fact that you are a criminal. There is no comparison between speeding ( which by the way every sensible driver should strictly avoid ) and encouraging illegal immigration. As I said in the UK at least employing illegal immigrants is a very serious offence. What type of person are you to equate the hiring of an illegal immigrant with a speeding ticket ? You don't seem to get it at all. After 9/11 I would have thought people in America would take their security a little bit more seriously, or are you having a laugh ?

In the US, it's such a minor offense that it's rarely prosecuted. In fact, I'm not sure but it might not even be a crime. It might be a violation driving without your seat belt.

What do illegal Mexican immigrants have to do with 9/11? The 9/11 hijackers were legal Saudi immigrants. Maybe I should refuse to hire legal immigrants and only hire illegals. That seems to be the lesson of 9/11, no? I'm having a laugh because you're equating a minor infraction akin to a traffic ticket to mass murder.

If indeed it is not a criminal offence to hire illegal immigrants in the US I would really find that incredible. In the UK at least and indeed in the whole of the EU hiring an illegal immigrant is a very serious offence indeed and no laughing matter. The fact that you apparently consider this matter no more that a misdemeanour at worst I truly find incredible. Either you are so young that you do not concern yourself with this sort of thing or you are so cavalier about the law that you are indeed a hardboiled criminal.

In any event you really must be daft how can something be described as illegal and then you go on to say ' ...I'm not sure but it might not even be a crime'. Are you really such an idiot ? Don't you know what the word 'illegal' means and implies ?

All crimes are illegal. Not all illegal activity is criminal. In the US, we have violations and crimes. Violations include speeding, being in the country without authorization, and hiring such a person. Crimes include murder, rape, assault, etc.

If you can cite the law which describes the hiring of illegal immigration as a minor offence or a misdemeanor, I would certainly apologise to you. However I am dead certain that you would be able to do so. You are and remain an idiot in my eyes until you can prove that what you have said is indeed true.

"It is unlawful for a person or other entity to hire, or to recruit or refer for a fee, for employment in the United States an alien knowing the alien is an unauthorized alien...." 8 USC 1324a(a)(1)(A).

"With respect to a violation of subsection (a)(1)(A) or (a)(2) of this section, the order under this subsection shall require the person or entity to cease and desist from such violations and to pay a civil penalty in an amount of not less than $250 and not more than $2,000 for each unauthorized alien with respect to whom a violation of either such subsection occurred." 8 USC 1324a(e)(4)(a)(1).

18 USC is the criminal code. 8 USC is the immigration code where the violation of hiring an illegal is for which there is a civil penalty (a fine), not a criminal one. It is on the same level as a speeding ticket.

I would confirm your citation and get back to you. However even the citation you have provided confirms it is illegal to hire an 'unauthorized alien' and I am not sure that you are required to pay between $250 and $2,000 for a 'speeding ticket' which suggests to me, assuming that the information you have supplied is correct that US law - absurdly lenient in comparison to similar laws within the EU, still recognises that violations of this sort are more serious than merely speeding.I will get back to you.

I am sorry I have been rather busy over the past week and as a result I have not been able to reply to your post. However, if you get responses to your post in your in-box, you should receive a full and proper reply from me in the next couple of days. But be clear of one thing, both the perpetrator and the facilitator of a crime, being in a joint enterprise, are equally culpable. Frankly they are equally guilty. If aspects of the law in parts of the United States are ambiguous in this respect there is no moral justification for this what-so-ever. I honestly find it incredible that a country built on immigrants and immigration should fail to police immigrants within it's borders as one would have expected it would; especially after '9/11'. Issues such as state security , prostitution, child trafficking , drug dealing etc. should be reason enough for genuine concern. Clearly from your response I gather that social attitudes towards illegal immigration are also rather casual. As to the substantial issue of the criminality or otherwise of illegal immigration in the US I will address that, although I claim no expertise in US law. Have a good evening. It is well past 02.00 GMT here in the UK, and I do need to get some sleep.

I strongly suspect raising the minimum wage will have a fairly small effect on the number of such jobs, because most of the really wage-sensitive jobs have already vanished from the US -- either eliminated by technology or outsourced overseas. Low-wage jobs that are still done in the US are mostly jobs that employers cannot figure out how to eliminate or outsource.

The best arguments for minimum wage remain:
1) workers are typically paid far less than their marginal product, because of asymmetric bargaining power - thanks to incomplete,information, high search costs and high costs of termination.
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In an ideal world, every business would be happy to employ any worker at a wage level, such that the marginal payroll cost for an hour of that worker's work, is less than or equal to the marginal revenue generated (for the business) by an hour of that worker's work. In the real world however, the marginal product (i.e. net marginal revenue) is unobservable - especially so for new recruits, where recruiters typically have little to go on beyond a set of paper credentials and a short interview.
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So, does the real world even try to approach (on expectation) our ideal economically efficient market clearing world? Well, no. Employers are not willing to pay any wage rate equal to or less than the expected marginal product of new recruits. Rather, they set that threshold for new recruitment much lower: while they can't observe productivity at the point of recruitment, they know that they will be able to observe more in the following months and years. They know that workers more productive than average, will be more likely to leave (staff turnover) unless they are identified and given wage rises. They also know that there are very high costs involved in making less productive new recruits redundant. Hence, employers are willing to recruit new staff, only at wage rates far less than the expected marginal productivity of new recruits (this dynamic is highly asymmetric).
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Well, do less skilled workers that choose to stay longer in a job, eventually get paid wages closer to their marginal product (which would be the economically efficient level)? Again, no. Remember: because of the above dynamic, a worker that leaves for a rival employer is likely to be offered a maximum wage rate far less than that rival employer considers to be the worker's marginal product. That dynamic gives existing employers of less skilled workers a very strong bargaining position: they can consistently pay less skilled workers far less than their marginal product.
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This amounts to rent seeking, and causes economic inefficiency as well as worsening inequality:
- if more productive workers are paid far less than their marginal product, then there will be insufficient investment by individuals (wage recipients) in personal skills development, own human capital and productivity improvement.
- if workers are paid less than their marginal product, then their opportunity cost will not be transparent to the businesses concerned, and there will be inadequate investment in productivity-boosting capital equipment or new products & processes
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It could be argued that a very well set minimum wage, if it elevated the wage of a large proportion of the workforce closer to marginal product, would result in higher economic efficiency as well as reduced inequality (businesses would invest in volumes of productivity boosting capital closer to the economically efficient quantity that would arise in our dream world of efficient labour markets; workers would respond to higher wages by investing more in their own human capital).
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In practice, this seems very unlikely - the real economy (and marginal productivity of workers) is so diverse that no single mandatory rate is likely to have much positive impact. And we always have to bear the cost in mind: some workers will always be denied opportunities by any minimum wage level (especially workers that want to receive part of their compensation in the form of training or skill development opportunities rather than cash).
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On balance, it seems far better to attack the (many, awful) flaws in the labour market than to institute national minimum wages.
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For anybody that still considers minimum wages sacrosanct, take a minute to think about a few of the world's very richest countries (which also happen to have among the world's lowest levels of income inequality, and among the world's lowest levels of youth unemployment): Switzerland, Germany, Norway, Sweden, Denmark & Finland. Clearly, we don't need a minimum wage to be prosperous, free and achieve low income inequality. So why do we allow our bureaucrats to wrap our businesses in red tape, with countless accounting and government agency enforcement systems built to make every business everywhere comply with minimum wage legislation (at all times, for all forms of employment)? The administrative and compliance overheads (proper documentation, proper communication with authorities, paying for external verification) are pretty heft - especially for startup businesses.
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Can we please scrap this and just focus on improving the labour market?

What you are suggesting would involve a lot of intense thought, analysis, and hard work.

It would be much easier to just raise the minimum wage, and hope for the best.

In any event, few of the people debating whether or not to raise the minimum wage, and certainly none of the people involved in the actual decision to change the minimum wage, will be directly impacted in any way by the consequences of raising the minimum wage.

All those countries you have just cited do kind of have a minimum wage:-

Germany - No statutory minimum wage, except for construction workers, electrical workers, janitors, roofers, painters, and letter carriers. Minimum wage is often set by collective bargaining agreements in other sectors of the economy and enforceable by law.

Norway - wages normally fall within a national scale negotiated by labour, employers, and local governments (again collective bargaining).

Sweden - set by annual collective bargaining contracts.

Denmark -None, nationally; instead, negotiated between unions and employer associations; the average minimum wage for all private and public sector collective bargaining agreements was 103.15 kroner per hour, according to statistics released on March 1, 2009

Finland - None in law; however, the law requires all employers, including non-unionized ones, to pay minimum wages agreed to in collective bargaining agreements; almost all workers are covered under such arrangements

In a lot of European Countries minimum wage is agreed on a sector by sector basis, between the unions, employers and governments. It is not that much different from having a national rate. but I do feel it is properly better due to the fact that the rates set are ones that the different sectors can absorb. hence higher overall wages and less inequality.

Notice how such sectoral or union-based agreements are very different in nature?
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They tend to shift bargaining power away from firms and towards workers, hopefully bringing compensation closer to marginal product for a much larger share of workers. Almost always, such agreements leave flexibility for taking on low-wage trainees or for taking on subsistence-wage interns. Almost always, such agreements allow startup businesses or small employers to be far more flexible in their pay structures. And almost always, such systems involve decentralised enforcement, involving worker-reporting rather than reams of form filling, expensive auditing & bureaucratic inspections.
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It's surely clear in everything I wrote that there are indeed very serious labour market problems to resolve - many workers today are being paid less than an economically efficient wage level (entire countries would be far richer today if there were some effective but case-sensitive force for businesses to pay closer to what wages would be if we had a competitive labour market). Ideally we need to build competitive labour markets; failing that we need to achieve a more symmetric balance of bargaining power at all wage levels.

Folks think to themselves, "Let's raise the minimum wage anyway, because, in the final analysis, the benefit to those who enjoy higher wages will be greater than the cost suffered by those put out of work," says the article.

Holy veil of ignorance! I would think being put out of work would be very painful.

It's odd that the people who usually oppose measures that increase income inequality favor it for the very poorest, and vice versa.

I'm not, myself, offering an opinion on the minimum wage. "Veil of ignorance" is a reference to a key thought experiment from John Rawls's book, "A Theory Of Justice." Near as I can tell, the minimum wage violates his theory, because the worst off become even worse off. Minimum-wage workers who support a raise in the minimum wage, without knowing who will lose their jobs as a result, seem to be behind a sort of "veil of ignorance," yet they do not choose what Rawls says people would always choose in that situation.

If I understand him, that is.

Lotteries seem similar - a lot of poor people paying money into games that make a few people rich. They're not even zero-sum games, their negative-sum games for the players. Sometimes people want opportunity more than equality.

I'm not nearly smart enough to have refuted him in a comment (I don't think) - his book has been called "the most important work in moral philosophy since the end of World War II" - but if I'm right that people behind a veil of ignorance empirically do not do what Rawls says they would, his theory of justice is based on a false premise.

Just read that article on wage subsidies, whereby wages are subsidized on a scale that declines with the employer's wage cost.

Doesn't this just penalize companies giving raises, in the same way that the current system penalizes small increases in income?

I mean, if I pay $6/hour now, with a $2 subsidy, and I give a raise to $7, with a $1.50 subsidy, that $1 raise just cost me $1.50.

In my view, it makes more sense for the government to simply make it cheaper to do business in general, and cheaper for the poor to live, by taking care of infrastructure, training, health care, retirement and so on.